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TMI Blog2012 (9) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 1992-93, 1993-94, 1994-95, 1996-97 and 1997-98. 2. The following question arises for determination in these civil appeals : "Whether on the facts and in the circumstances of the case, ITAT was right in holding that closing stock of incentive sugar has to be valued at levy price and not at cost price?" 3. For the sake of brevity, we have reproduced hereinbelow the facts of Civil Appeal arising out of SLP(C) No. 9263/2009. Assessee is a company engaged in the business of manufacture and sale of sugar. Assessee filed its return of income for assessment year 1997-98. In its return of income, confined to its Karnataka unit, assessee valued the closing stock of incentive sugar (free sugar) at levy price. The Department valued the closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centive Sugar" for short). However, the Scheme provided that excess amount realized by the manufacturer over the levy price by sale of incentive sugar would be utilized only for repayment of loans taken from the banks/ financial institutions for establishing the new unit(s). In regard to utilization of excess realization towards repayment of loans, the sugar mills were directed to file certificate of chartered accountant subject to which further release orders would be issued by the Directorate of Sugar. This Scheme came up for consideration before this Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 in which this Court held that the excess amount realized by the manufacturer over the levy price by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of true profits. An improper valuation could result in rejection of books of account though all that is needed for rectifying it, is to make an addition or necessary adjustment based on proper valuation. Valuation of stock, whatever be the method, should be consistently followed. Method of valuation is generally at cost or the market value whichever of the two, is lower. However, it is open to the AO to probe the accounts, so as to arrive at the real income [see : Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC)]. Profits of the business could only be ascertained by comparison of assets and liabilities of the business at the opening and closing of the accounting year. The method that an assessee adopts for closing is an integral part of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided incentives in the form of price and duty differentials [see para 13 of the judgment in Ponni Sugars & Chemicals Ltd. (supra)]. In the present case, if the closing stock of incentive sugar was to be valued at any figure, above the levy price, the direct consequence of such a valuation would have been that the excess amount over the levy price would be reflected as part of business income which would run counter to the judgment of this Court in Ponni Sugars & Chemicals Ltd. (supra). We must keep in mind that the stock valuation of incentive sugar has a direct impact on the manufacturer's revenue or business profits. If we were to accept the case of the Department that the excess amount realized by the manufacturer(s) over the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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